Saturday, 8 May 2010

Election crisis: markets call the shots

The hung parliament that has resulted from Britain’s inconclusive general election is certain to lead to a prolonged period of political instability slap bang in the middle of the gravest economic and financial crisis since the 1930s.

Now the horse-trading begins – behind the voters’ backs – to put together a government that is unlikely to see the year out. The Tories, New Labour and the Lib Dems don’t have much time, as the markets made clear while the last votes were being counted.

Sterling fell on the foreign exchange markets, while the cost of borrowing to fund the huge budget deficit rose as dealers in British bonds began to take evasive action. Shares on the FTSE 250 – which more closely reflects the British economy – fell by over 270 points. “They have got until the markets open on Monday to sort this out,” one dealer said.

Paralysis at Westminster comes amidst turmoil coursing through global markets in the wake of Greece’s bail-out by the International Monetary Fund and other eurozone countries. Few think the £100 billion rescue package will be sufficient and the resistance by Greek workers has further unnerved the markets.

“The election is shaping up to create the worst possible outcome at the worst possible time,” warned David Morrison, strategist at GFT. “Investors’ nerves are already jangling and this added uncertainty will undermine UK equities further. The sell-off in gilts [bonds] and sterling is a clear indication of how unimpressed the City is by the lack of a clear winner.”

If the City was unimpressed, so too were the electorate. Their refusal to give any party a clear mandate could be seen to express a fear that such an outcome would make massive cuts in services and living standards more certain. While the turnout was up slightly on 2005, in many inner-city areas it was below 60%. More than one in three registered voters did not participate, despite intense pressure to do so.

Clearly the TV debates did nothing to enable voters to distinguish one party from another, apart from the style of the respective leaders. Many undecided voters failed to work out a choice in time while thousands of those who made up their minds late in the day found themselves locked out because polling stations were understaffed.

All the major parties have now pledged to act “in the national interest”, which is tantamount to saying that the markets must be mollified by a cross-party agreement to make the cuts they hinted at but shied away from spelling out in any detail during the election campaign. Ruling in the people’s interest is not an option for any of them.

One thing is clear. New Labour spent 13 years in office promoting a market capitalist economy that ultimately crashed and in doing so created the political space for the hated Tories to make a comeback from the dead. In 1997, New Labour got 43% of the vote and more than 12 million votes. Now they are down to a 29% share and 8 million votes.

A majority New Labour government is now no longer a practical possibility in British politics. Any pact with the Lib Dems would simply confirm a new political alignment that is not so much “progressive” as anti-socialist, anti-trade union and pro-business.

The election result shows that the Parliamentary system is in melt-down, one that reflects the real chaos in global economics and finance. An anti-people regime without any mandate will set about clobbering the electorate very shortly. On that basis, we have an absolute right to oppose and reject whatever government and policies emerges this weekend. More than that, we should set out creating the framework for a real democracy in the shape of a network of People’s Assemblies. The old system is broken and can’t be fixed.